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Source link: http://archive.mises.org/9622/newsweek-finds-the-culprit-the-savers/

Newsweek finds the culprit: The savers!!

March 17, 2009 by

The latest “cover” story on Newsweek gives us the Krugmanized line: “Stop Saving Now!” Yes, it is those savers, those horrible, poisonous savers who are doing us in:

As consumers hibernate and investors hoard cash, the economy is withering. This new age of thrift is understandable. But for a recovery to take hold, Americans will need to start taking risks again.

Of course, since the administration is demonizing risk and demanding regulation that blocks risk-taking, Daniel Gross, the author of this abomination is barking up the wrong tree. Yes, according to Newsweek, it is those evil savers who are destroying the economy, and it is up to the government to ride to the rescue. Yes, that same government that encouraged recklessness with its easy money policies. Yeah, always blame private individuals. The State is our savior, Newsweek tells us.

While the Supply-Siders got a lot wrong, they were right about the need for Americans to build up their savings during a down time. In the election campaign of 1980, there was a lot said about rebuilding the economy through new capital investment (not malinvestment) and for the government to stop blocking people from saving money. (The Carter administration and its allies said that the government should “save” by raising taxes.)

In his March 2 column in Newsweek, Jonathan Alter praised the coming army of government “national service” groups that are going to be all over the place. We are seeing the hard left in this country doing what it has dreamed of doing for years: transforming the entire country into something in which the State is supreme and everyone else must bow down — or else be out of work.

Yes, it is those “reckless” savers that are doing damage to the economy, and it is up to the government to ferret out those miscreants and make them spend. And if they refuse or (horrors) “hoard” gold, then the new army of volunteers is going to make their lives miserable.

{ 13 comments }

AC March 17, 2009 at 11:55 am

Increased production requires increased capital. Capital accumulation occurs through saving.

Yeah, I got an idea, let’s consume all of the grain (including next year’s seed stocks), slaughter all the livestock (including breeding stocks). Then when we having nothing with which to replant, or replenish herds, we’ll just chant, we didn’t spend enough.

This same principle applies to production of all goods, whether it is food stuffs, houses, toasters, pencils, computers, mining equipment. Don’t repair or replace your production equipment and your production capacity will diminish.

Toss a log on the fire March 17, 2009 at 12:18 pm

When the pundits say consume, they mean consume in the same way a fire consumes fuel. Savers are stacking logs for the cold days in winter. The government is saying “Throw another log on the fire” to make it hotter.

If you keep throwing logs on the fire, not only will you have no logs for later, but you will make the fire so big it will burn your house down. Come to think of it, the government’s house is burning down, isn’t it?

Ken March 17, 2009 at 12:44 pm

(Tinfoil!) I wonder whether this topic got kicked around on JournoList before it made the cover of Newspeak. It ain’t like the government never thought of expropriating gold before, and we know that this time 401ks (what’s left of ‘em) are on the table too.

Brian Gladish March 17, 2009 at 2:20 pm

Will it ever dawn on the left that “national service” was the mantra of the Nazis – that in this direction is the fascism that they so loudly decry?

Andras March 17, 2009 at 2:22 pm

I would note that from a GDP stand point Keynes might be true. It’s just a shame that GDP can not differentiate between a (financial or natural) catastrophy and an industrial revolution. I guess that was the reason behind its invention to justify any state intervention.
In an era when GDP, a false measure is accepted as a leading number anything can be sold as it relates to everything and its opposite.

Ralph Musgrave March 17, 2009 at 2:34 pm

AC (first comment above) makes a mistake often made by those who have not studied economics: failing to see the distinction between saving money and saving in the “storing up physical capital” sense. It is perfectly possible for a country to save in one sense of the word, while DISSAVING in the other sense. Newsweek is right: less money saving would solve the problem. But if people want more “saved money”, there is a better solution that criticising money savers: just print more money and dish it out. For a very nice illustration of this working in practice, see http://www.slate.com/id/1937/

Nick E March 17, 2009 at 3:19 pm

Ralph (last comment above) makes a mistake often made by those who have not studied economics: failing to see the distinction between saving in the sense of “accumulating capital received in exchange for productive effort as a reserve against future consumption” and “banks accumulating pieces of green paper”. If one commodity becomes less scarce it loses its value relative to other commodities that one might like to exchange it for; pieces of green paper are not immune to this principle. If banks lend out cash that doesn’t correspond to anything that anyone’s saved for future consumption, then products brought to market in the future won’t find anyone waiting to buy them. So printing more money doesn’t really solve the problem.

AC March 17, 2009 at 3:40 pm

To Mr. Musgrave,

You’ve got to be kidding me!?!

Your Slate article and Mr. Krugman are incorrect. The problem with your babysitting was price fixing and a very imperfect medium of exchange (your coupons). The value of which was over-inflated commensurate to the value of the babysitting service. If the price of babysitting was allowed to fluctuate relative to the medium of exchange, the coupons would’ve re-valued based upon willing participants bidding various prices. What the participants did was get together and decide to devalue their coupons in order to get them closer to a correct value. They initially got lucky and guessed correctly. But that didn’t stop them for devaluing the coupons further later on, making problems. They ended up wrecking the pricing of 1 service. Now, how in the world is a group of beaurocrats going to divine the correct price of goods/services by arbitrarily changing the value of the money for millions of products and services? Also notice that it was all of the participants that agreed to do this, not some outside force that thrust itself into the negotiation, aka the Federal Reserve Bank or a gov’t agency.

While you print more money and “dish” it out, it isn’t going to go to the holders of existing dollars prorata to the amount they are currently holding before the “dish” out event. Therefore, some will be stolen from and some will get “free” money (free to them). As the counterfeit money works its way through the market place, prices will begin adjusting, howbeit not all at once. As these prices readjust, the individual who got few “dish” out dollars or got them last has just been robbed. In a complex economy, such as any that exist today, you will be stealing from someone to give to someone else. That is morally reprehensible.

Mr. Musgrave you have just advocated for tyranny.

Do some research into history and you’ll find gov’ts throughout history have debased their currency in order to spend more without ever having earned any of it. In the end, the real effect it has is to rob wealth from those who have saved it and to then immediately consume it.

And your foolish comment about me not studying economics, please, it is you who should do some studying. Try Henry Hazlitt’s Economics in One Lesson, Dr. George Reisman’s Capitalism, Ludwig Von Mises’ Human Action. Actually, just take a look at much of the free literature on this website.

Money is a medium of exchange. If I convert my saved production to currency, then lend it out to someone else to re-invest in capital replenishment, I have helped him/her to increase current production, however, it was due to MY capital. They just borrowed it. But rest assured, I’ve saved my capital. Production is what moves economies. If nothing is produced, all the money in the world won’t do you any good. If you don’t believe me go to Zimbabwe. They have plenty of “printed” money stock, but they don’t have much capital.

Stanley Pinchak March 17, 2009 at 3:41 pm

Ralph Musgrave,
your viewpoint is hampered since you have no concept of a structure of production. Krugman’s allegory of a zero-sum economy with no captial structure is not applicable to an economy which does utilize specific capital. He also apparently does not realize that the scrip in his economy had no way of adjusting its purchasing power and no entreprenurial action allowed innovations to fix the economy. Being a bunch of bureaucrats, they depended on innovations handed down from the regulatory agency, hardly an accurate model of they dynamic and constantly evolving market. Furthermore, artificially enabled consumption through inflation causes capital consumption. It is literally eating the seed corn. Saving permits the capital stock to replenish and grow.

Even hoarding has beneficial aspects for both society and the hoarder. Society benefits by having a greater stock of consumers goods available, a higher purchasing power of each monetary unit (your paycheck is worth more), and consequently, the cost of capital goods is decreased, and cantillion effects lead to an increase in the capital structure. The hoarder benefits because he gains the satisfaction of holding the particular amount of money that he feels is prudent, and secure in the knowledge that he may utilize this hoard in the future if need or desire arises. Self correcting feedback in an unhampered system allow the rise in the PPM to signal the hoarder to stop hoarding at a particular level. Net dishoarding on the societial level tends to decrease the PPM, which is again checked by the individual demand to hold money, which to obtain equivalent purchasing power, is represented by a larger quantity of monetary units.

Merely injecting money and reducing the PPM via inflation will not provide the solution that you seek. Once individuals notice the fall in the PPM, their demand to hold money will increase in proportion, eliminating the supposed benefits of your inflation. Meanwhile, some of that inflation will be misallocated, spent on capital consumption, and will only leave the economy in a weaker state than before. This will further deepen the recession and lead individuals to increase their hoardings in order to prepare for increasingly uncertain times.

So yeah, just inject a bunch of money and everything will work out like in a beautiful Keynesian dream. Unfortunately, the common man will be subject to an increasingly terrifying nightmare. Thanks.

Kevin Bland March 17, 2009 at 6:01 pm

Mr. Musgrave must be a member of the same school of economics that (1) got us where we are now and (2) is “fixing” everything for us now so we don’t have to worry about the future.

Mr. Musgrave, where does capital come from? There is no Investment (I) without Savings (S). The only way investment can occur without saving is to create money out of thin air. You differentiate saving, as in money or the medium of exchange, with the storing up of physical capital. These are linked. How can a society “store up physical capital” without the savings/investment necessary to purchase or build the capital stock?

You must assume that the capital stock is a given and never must be purchased, built and maintained and replaced/upgraded in order to view saving as bad for the economy and unneccesary.

We now have an economy that is indeed built on debt capital and not equity (savings) capital. Even in a fractional reserve banking system that grows the money supply to provide the medium of exchange (dollars) for capital investment, some saving is required. In fact, when the U.S. Treasury borrows from the Chinese to bail out the fractional reserve bankrupt banking system in the U.S. the Chinese actually went into their vault of savings, “foreign exchange reserves (dollars, yen, euros, etc.) that they had on hand to purchase the Treasury Bonds (loan to America). They did not borrow to then lend to America. They loaned to America out of real savings.

Without “real” savings somewhere, the Treasury could not raise “capital” to inject the broken banks so they could then lend to businesses to build, purchase, replace the capital stock. This also leads to the conclusion that without “real” saving somewhere, America can deficit spend.

Again, the point is that without “real” savings there can be no economic growth over the long-term because the capital stock is not a given. Consumption today must be deferred by someone somewhere in order to “invest” in the capital stock so we can consume more tomorrow.

AC March 17, 2009 at 11:53 pm

Keynesian economics and gov’t multipliers remind me of the old televangelists in the late 1980′s and early 1990′s. Just send me $100 and it’ll turn into $1000. Give me your faith money and it’ll grow. If you don’t see results, you just need to have more faith and send me $1,000 to make $10,000.

Keynesian politicians tell us just give me your vote and I’ll turn the tax dollars from the rich into wealth for all. I’ll crank up gov’t spending and it’ll lead to increased wealth creation. If it doesn’t work with a little stimulus, we’ll just spend even more, but you’ve got to have faith. There’s a crisis of confidence out there and if we spend enough and you have enough faith in big gov’t, we’ll all get through this.

These politicians are spouting this “crisis of confidence” nonsense, as though it is the underlying fundamental problem. That the debt load is too high in relation to actual capital…no, that’s not the problem, it’s just some crisis of confidence that popped up for some unknown reason. As though regaining confidence will magically make the actual fundamental problem of high debt and low capital go away. Pay no attention to the man behind the curtain (Federal Reserve Board Chairman).

I’ll tell you why people are losing confidence. It’s because we’ve been piling on the debt, going on the spending binge, while sacrificing our capital on the altar of consumption (I’m sticking with televangelist theme). After awhile, the debt load gets so high it isn’t manageable anymore and we wake up and realize the capital is gone and in its place is a big debt that can’t easily be repaid, then the sinking feeling sets in, and rightfully so. That sinking feeling leads us to pull back in the debt induced consumptive spending (because we intuitively know it will be our undoing if we don’t), accumulate some more capital/savings, replace and replenish productive capacity.

Telling everybody to just believe, have faith and spend some more is like being stuck on stupid.

Gil March 18, 2009 at 1:50 am

How isn’t there some sort of ‘withdrawal’ from the ‘system’. Isn’t the ability of people to ‘take their business elsewhere’ or ‘refuse to do business’ not cause disequlibrium in the system? If people don’t like a particular business and go to its competitor and it goes bankrupt doesn’t prove this change can happen for better or for worse? By the same token, if people don’t like a company and sell their shares of the company, will this not be detrimental to the company? To say, “well a sell-off would cause the price of the shares to fall but then this could also cause the shares to be bought up by others because the share price would be a bargain to them thus restoring the share price and the company” also sounds like a zero-sum game. Similarly, money being ‘hoarded’ (in a fixed money supply) is suppose cause deflation (less money/same number of goods & services = more value for money) can mean those who have money get more value but it also makes the same value of money harder to get (wages fall). This would only favour those who have idle money as opposed to those who frequently spend and earn (presuming no deflation lag factor either).

Proud Saver March 18, 2009 at 7:23 am

On Nazi “working” camps, on the entry doors was written “Arbeit Macht Frei”.

Which means Work Liberates, or Work Renders Free.

But, in order for work to make free, one must be able to SAVE the products of his work over a considerable amount of time in order to have enough money to become financially independent.

Slaves in the german “working” camps we not even fed properly, let alone paid for their work, so they could never home to become free.

SAVING is the ultimate act of independence. The more you save, the less you depend on others and the less you depend on the government.

SAVING makes you independent and free. Exactly what our rulers don’t want you to be.

Don’t obey this diktat, don’t stop saving. In fact SAVE SAVE SAVE.

It’s the only way you will save yourself from tyranny.

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